One of the most important considerations when purchasing a property is the taxation associated with the transaction. Quite a few Israelis are interested in real estate in Cyprus, thinking that taxes there are lower than in Israel, thus allowing the investment to be more profitable. To understand the picture in depth, it is important to know the purchase tax and VAT in Cyprus, and compare them to the corresponding tax in Israel.
Purchase tax in Israel
In Israel, the purchase tax is determined according to brackets that are updated annually. For example, no tax is paid on a first apartment up to a certain amount, while for amounts higher than that, the tax bracket increases gradually and can reach 10%. When purchasing an apartment for investment (which is not a single apartment), the situation is completely different: the tax starts from the first shekel, at a rate of 8%–10%. This means that anyone who buys an additional apartment in Israel is required to add hundreds of thousands of shekels to the purchase tax alone.
Purchase tax in Cyprus
In Cyprus, the purchase tax is called Transfer Fees, and it is much simpler. The tax is calculated as a percentage of the transaction value and ranges from only 3% to 8%, depending on the value of the property:
- On the first 85,000 euros – 3%
- For €85,001–170,000 – 5%
- For any additional amount over €170,000 – 8%
This means that if you purchased a property worth €250,000, the purchase tax would only be around €12,700. It is important to note that if the property is purchased from a new contractor and the transaction is subject to VAT, you are sometimes exempt from paying the Transfer Fees.
VAT in Israel
In Israel, VAT is 17% and applies to almost every transaction in the economy. In real estate, VAT is usually included in the price of the apartment from the contractor, so the buyer does not always see it explicitly but definitely pays it as part of the cost. In the sale of a second-hand apartment, the transaction is exempt from VAT.
VAT in Cyprus
In Cyprus, VAT is 19% and applies to the purchase of new properties from a developer. However, there is a significant relief for those purchasing a first-time residential apartment: the VAT rate is reduced to only 5% on the first 200 square meters of the property. In other words, an Israeli family that purchases an apartment in Cyprus for personal use enjoys a very large benefit. On the other hand, someone who purchases a property for investment will pay the full VAT rate.
Direct comparison between the two countries
The differences between Israel and Cyprus are very noticeable:
- First apartment in Israel – You can receive a partial or full exemption from purchase tax up to a certain ceiling.
- First apartment in Cyprus – there is no exemption from purchase tax, but VAT is significantly reduced to only 5%.
- An investment apartment in Israel – extremely high purchase tax (8%–10%).
- Investment apartment in Cyprus – moderate purchase tax (3%–8%), but 19% VAT must be paid on new properties.
From this it can be seen that for an Israeli investor, the purchase tax in Cyprus is much more favorable compared to Israel. However, the high VAT on new properties may increase the initial expense.
The impact of taxation on investment
Lower taxation directly affects the viability of the deal. If in Israel a significant portion of equity is “swallowed” in a high purchase tax, then in Cyprus it is possible to invest for a lower amount. In addition, in Cyprus there are additional tax breaks – for example, there is no estate tax, and capital gains tax rates are relatively low – which further strengthens the attractiveness for Israeli investors.
Summary
When it comes to taxation, Cyprus offers much friendlier conditions for Israelis interested in purchasing a property for investment or residence. The purchase tax is moderate, the VAT is high but can be significantly reduced when purchasing a first residential apartment, and the entire fiscal system is simpler and more transparent than that accepted in Israel. For those looking to explore investing overseas, this is a significant advantage that makes Cyprus one of the preferred alternatives.
